The income statement for Sweet Dreams Company is divided by its two product lines,blankets and pillows as follows:
$$\begin{array} { | l | r | r | r | }
\hline & { \text { Bhankets } } &{ \text { Pillows } } & { \text { Total } } \
\hline \text { Sales revenue } & \$ 620000 & \$ 300000 & \$ 920000 \
\hline \text { Variable expenses } & 465000 & 240000 & 705000 \
\hline \text { Contribution margin } & 155000 & 60000 & 215000 \
\hline \text { Fixed expenses } & 76000 & 76000 & 152000 \
\hline \text { Profit (loss) } & \$ 79000 & \$ ( 16000 ) & \$ 63000 \
\hline
\end{array}$$
Sweet Dreams should eliminate the pillows product line only,if by doing so,they can eliminate more than $60 000 of fixed costs.

Question

The income statement for Sweet Dreams Company is divided by its two product lines,blankets and pillows as follows:
 $$\begin{array} { | l | r | r | r | } 
\hline &  { \text { Bhankets } } &{ \text { Pillows } } & { \text { Total } } \
\hline \text { Sales revenue } & \$ 620000 & \$ 300000 & \$ 920000 \
\hline \text { Variable expenses } & 465000 & 240000 & 705000 \
\hline \text { Contribution margin } & 155000 & 60000 & 215000 \
\hline \text { Fixed expenses } & 76000 & 76000 & 152000 \
\hline \text { Profit (loss) } & \$ 79000 & \$ ( 16000 ) & \$ 63000 \
\hline
\end{array}$$ 
Sweet Dreams should eliminate the pillows product line only,if by doing so,they can eliminate more than $60 000 of fixed costs.

Quizplus · Accepted Answer

If eliminating the pillows product line can reduce fixed costs by more than $60,000, the overall profit would increase, as the loss from pillows is $16,000, and reducing fixed costs by more than $60,000 would offset this loss.

The Income Statement for Sweet Dreams Company Is Divided by Its